July 2023 Housing Market Update
Hey Richmond, VA! We have a critical issue at hand in the housing market, and it's not what you might initially expect. In this July 2023 Housing Market Update, we'll delve into the problem that's been haunting both the national and local real estate scenes in Central Virginia: the continuous shortage of homes available for sale. Let's explore the underlying causes and their impacts on the housing market.
The Supply Dilemma
The primary concern that has been hampering the housing market's growth is the persistent lack of available homes for sale. Nationally, the number of new listings has dwindled significantly compared to the last six years, with a staggering 25.7% year-over-year decline (Graphic 2). Even when comparing this year's figures to the pandemic-stricken 2020, we find a substantial drop of 16.4% in new listings (Graphic 2).
In Central VA, the situation is even more dire, with a staggering 30.6% year-over-year decrease in new listings (Graphic 3). The graphic highlights how historically low the new listings are compared to the previous five years' June figures.
Root Causes of the Problem
This persistent shortage of housing supply can be attributed to two main factors:
- Resale Homes: Many homeowners have secured favorable fixed rates and are hesitant to sell their properties, fearing the prospect of higher mortgage rates on their next purchase. Tim Barkin, President of the Federal Reserve Bank of Richmond, pointed out, "I didn't fully anticipate how much the move in interest rates would convince people not to put their houses on the market" (Graphic 1).
- Lack of New Construction Starts: Another significant contributor to the housing supply issue is the lack of new construction starts (Graphic 4). The graphic showcases new construction starts over the past 23 years, with horizontal lines representing averages for different periods. The years between 2000 and 2007 saw a massive surge in new construction, which contributed to the oversupply issues leading up to the 2008 crash. However, between 2008 and 2014, only half the average number of homes were built compared to the period from 1960 to 1999. While the situation has improved recently, there is still a substantial gap to bridge to meet historic average levels of new construction.
Although demand has experienced a slight decline due to rising interest rates, it has not dropped enough to significantly alter market dynamics. The indicators reflect the ongoing strength of the housing marketMonths Supply of Inventory (MSI) remains low, under 1 MSI (Graphic 5).
- The median days on the market are just 6 days (Graphic 6).
- In June, sellers, on average, received 103.5% of their asking prices (Graphic 7).
Takeaways for Sellers
- Don't Believe The Headlines: While supply has decreased and transactions have dipped, the market is still buoyant and mirrors the conditions seen during the pandemic in Central VA. It remains a favorable time for sellers.
- Seasonality Has Returned: Be mindful of the seasonal trends in the real estate market, as it can impact buyer behavior and preferences. Summer, in particular, tends to end around mid-August.
Advice for Buyers
- Armageddon Is Not Here: While there are challenges in the housing market, it is not the doomsday scenario some might expect.
- Rates Are Projected To Drop By Year End: Keep an eye on interest rates, as projections suggest they may decrease later in the year.
- Renting Is Your Alternative: If buying proves challenging, renting is a viable alternative in the current market landscape.
In conclusion, the housing market in Central VA faces significant obstacles due to the continued lack of supply, but it remains resilient. As we navigate these challenges, understanding the root causes and market dynamics will help both sellers and buyers make informed decisions.